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Private Equity Breathes a Sigh of Relief

Section 413(a) of the Dodd-Frank Act alters the financial qualifications of who can be considered an accredited investor and eligible participant.

There were rumors that the SEC qualifications for accredited investors were going to increase dramatically. Currently, one is considered an accredited investor if their net worth is at least $1 million (excluding the value of their home), their yearly income is $200,000, and is the manager of his/her investment portfolio.

On July 27th, 2010 the SEC provided clarity regarding the valuation of a person’s home when calculating net worth as follows:

“Section 413(a) of the Dodd- Frank Act does not define the term “value,” nor does it address the treatment of mortgage and other indebtedness secured by the residence for purposes of the net worth calculation…

Pending implementation of the changes to the Commission’s rules required by the Act, the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from and investor’s net worth.”

Fortunately, the SEC understands the importance of a person’s “accredited investor” status to their activity in the investment arena. At least this is one bit of good news among so much negativity spurred by the US’s current economic recovery process.